Receive Versus Payment (RVP): Process of Settlement of Securities

What Is Receive Versus Payment (RVP)?

Receive versus payment is a settlement procedure for investment securities in which the payment must be made prior to the delivery of the securities being purchased. In other words, the delivery of the securities and delivery of the payment must happen simultaneously.

Receive versus payment settlement is used by institutional investors, including financial institutions and mutual funds. Receive versus payment provisions arose when institutions were prohibited from paying money for securities until they held the securities, and they were in negotiable form.

Receive versus payment is helpful since it reduces the risk of a firm delivering the securities and not receiving the payment.

Understanding Receive Versus Payment (RVP)

The receive versus payment settlement process helps to ensure that the delivery of securities is only done if payment is made. The RVP process is from the seller's point of view, meaning the seller must deliver the securities once payment has been made.

The settlement process from the buyer's point of view is called delivery versus payment (DVP) since the buyer must make the payment before or at the same time as the securities are delivered.

Many institutional transactions are done electronically, and an RVP settlement provides an electronic bridge between the wire transfer system and the securities delivery system. Without an RVP settlement, process brokers would be at risk of delivering the securities and not getting paid by the settlement date.

The goal of the receive versus payment and delivery versus payment system is to reduce the risk of nonpayment and nonreceipt of securities for both parties involved in the trade. Receive versus payment is also called receive against payment (RAP).

Receive Versus Payment (RVP) Process

Typically, DVP and RVP transactions involve large institutional market participants such as pension funds. Below is a typical process for RVP-DVP settlement.

On the settlement date of the transaction, the broker selling the securities delivers the securities to the bank of the purchasing party. The purchasing party initiates a wire transfer to be delivered to the seller's account. The securities are not released by the buyer's financial institution until the seller has received the money.

Receive versus payment can be contrasted with delivery versus free (DVF), where no exchange of cash needs to occur at the same time the securities are delivered. Delivery of payment can occur at a time separate from the delivery of securities with delivery versus free settlement.

Benefits of Receive Versus Payment (RVP)

The RVP process helps to protect the seller of securities in times of stress or extreme volatility in the financial markets, such as during 9/11 and the 2007-2008 financial crisis. The RVP and DVP settlement system also reduces principal risk, which is when a payment is made without the delivery of the securities to the buyer.

RVP and DVP help ensure that payments accompany deliveries, and the delivery of securities is only made upon a payment, thus reducing the risk of loss to both parties involved in the trade.